Show Me The Money!

At VALURA, over the past ten years, we’ve examined hundreds of companies, discovering that profitability issues, negative returns on equity, and discrepancies between revenue statements and balance sheets do not equate to bankruptcy.

The real challenge lies in the long cash conversion cycle, inadequate net working capital, and the intricate performance dynamics of liabilities, receivables, and inventory. A prolonged Cash Conversion Cycle (in days) leads to a fragile financial structure. Thus, management’s foremost priority should be to enhance working capital and optimize the cash conversion cycle.

A comprehensive study by PWC aligns seamlessly with VALURA data, revealing key insights.

* The global cash conversion cycle averages 46 days for all companies, while it extends to 97 days for SMEs.

* Large corporations outpace small businesses with an inventory cycle of just 30 days.

* Defense and aerospace sectors grapple with the longest cash conversion cycle at 108 days, whereas transportation and logistics excel with the shortest at 34 days.

* As the cost of capital rises, so too does the critical need for effective working capital management.

* Over the past four years, the fixed asset investments/turnover ratio has fallen by 15%.

In conclusion, companies must make it their mission to prioritize the enhancement of net working capital and the cash conversion cycle. This focus is paramount for securing sustainable, profitable growth.